U.S. futures regulator urges conflict-of-interest rules

September 21, 2012|Reuters

U.S. Commodity Futures Trading Commission Chairman Gary Gensler gestures as he speaks during a meetin in Washington D.C. in 2011. (Hyungwon Kang/Reuters)

A top regulator at the U.S. Commodity Futures Trading Commission called on F riday for the agency quickly to finalize rules aimed at preventing conflicts of interest at derivatives exchanges and clearing-houses.

In remarks prepared for delivery at the Hard Assets Investment Conference in Chicago, Democratic Commissioner Bart Chilton urged the CFTC to take up two-year old proposals that would limit the voting equity in clearing-houses and exchanges that members like banks can hold.

"The time has come, and we need to get a final rule out there that does what I've been talking about: make sure that banks don't put their own interests in front of their customers," Chilton said.

"It's my hope and expectation that our agency will get a final rule out by the end of this year."

The rules were mandated by the 2010 Dodd-Frank Act, aimed at beefing up oversight and limiting risk in the $648 trillion global over-the-counter swaps market, among other financial reforms.

The law was a response to the financial crisis, which was fueled by risky swaps trading at firms like insurer American International Group that led to multi-billion dollar taxpayer bailouts.

The conflict-of-interest rules were among the first proposed by the agency in October 2010, but contentious debate has prevented the proposal from being finalized.

Opponents believe the curbs would stall investment in trading and clearing platforms at the very time an expansion is needed to handle an influx of contracts and improve stability and transparency in the sector.

But supporters say the limits are needed to prevent large players from exercising too much power over the mechanics of the vast market. Some, including the Department of Justice, have asked for tougher rules.

"I might have proposed some stricter standards, if it were just me," Chilton said.

The agency, which has struggled to keep pace with the dozens of rule-making deadlines, has been criticized for its ad-hoc approach to finalizing rules.

Among the key components of the proposals is a measure capping voting equity at 20 percent for members of exchange and swap trading platforms, known as "swap execution facilities," or SEFs.

Another component would require at least 35 percent of boards at clearing-houses, exchanges and SEFS to be public directors. Such directors would also have to make up a majority of nominating committees.

Such rules are key to shifting the corrosive culture that Chilton says has come to dominate many banks.